Different approach to oil tax needed

Posted: Wednesday, April 13, 2011

By Rep. Les Gara

The debate on the Governor's proposal to roll back the state's share of oil revenue by nearly $8 billion over the next five years has been political, not factual. It's time we shared what we've learned in committee testimony so people can hear the facts.

There are smart ways to require more investment, and more oil production. If the state is going to offer tax reductions, we should get something in return -- more jobs and more needed development. Isn't that how you'd write a contract if you were going to give away $8 billion?

House Democrats offered that approach, offering amendments that would allow state tax reductions only if companies drilled more exploration wells, or produced badly needed oil production facilities for new oil. We have filed legislation to also offer tax reductions if companies increase well drilling activity above their past five-year average. We propose accountability -- tax breaks only with a guarantee of new exploration and development.

The Governor proposes the opposite. He relies on a hope, wing and a prayer that Exxon, ConocoPhillips and British Petroleum will give us any of the $8 billion in tax reductions back. He offers tax credits for work companies are already doing, in fields they are already producing. His bill allows the oil industry to take every penny of his proposed tax reductions out of state, to Dubai, Azerbaijan, and even to places like Libya and Venezuela where Conoco's assets have all recently been lost to nationalization and war.

A plan that doesn't work, and that spends away state revenue, will lead to mass layoffs of construction workers, teachers, firefighters, police and others. Changing this state from one with a surplus to one that suffers from deficits will leave towns with "House For Sale" signs, not jobs. And the worst thing is that as the evidence piled in that the Governor's proposal won't work, he hasn't listened.

The evidence makes clear that the Governor's plan needs to be dropped in favor of smarter ones.

The Governor started out claiming Alaska isn't getting enough exploration, yet the vast bulk of the Governor's giveaway would go to producers who aren't going to explore. Exxon and British Petroleum testified that if his bill passes they won't likely drill a single exploration well. Conoco testified they might, or might not. And the Administration's own ads in the Petroleum News on March 27, concedes, "Alaska is successfully encouraging investment from companies that are new to this state."

What else have we learned? More that should concern you. The Department of Revenue says that even if the Governor's bill were to add a wishful 5-percent increase in production, the state will receive roughly $6 billion less in revenue in the next five years than we will under current production forecasts, and under the current law. If his bill "works," we still lose billions.

The Governor also relied on something called the Fraser Report -- which his Commissioner touted as credible until he realized he was reading it wrong. He dropped it when he realized it said 74 percent of those surveyed thought Alaska's oil tax system did not deter investment.

Conoco recently issued PR statements that they'll consider development that logic says they were going to do regardless of the Governor's bill. They largely proposed development in existing fields they have sunk costs into, and that they have every incentive to maximize production from. Alaska already offers credits and deductions that pay more than 60 percent of these capital costs. One shouldn't take too seriously the PR push that work in existing fields won't happen unless they get more tax breaks.

And what of claims oil companies are suffering? Conoco recently bragged to investors that they earn "strong cash margins" in Alaska. British Petroleum and ConocoPhillips have each reported over $7.5 billion in Alaska profits (BP legally deducted $1.5 billion in Alaska profits for its Gulf spill) since 2007.

The Senate is right. The Governor's plan is poorly crafted. It's time for the Governor to start listening to the evidence, rather than sending out PR.